SATHYA REDDY,BANGALORE V. INCOME TAX OFFICER, WARD-1(2)(2), BANGALORE

ITA 1802/BANG/2025

AI Insights

The case involves Mr. Sathya Reddy, who appealed against the order of the National Faceless Appeal Centre (NFAC), which upheld the addition of Rs. 75,16,000 as unexplained money under Section 69A of the Income Tax Act. The addition was based on cash re-deposits into the assessee's bank account, which the CIT(A) deemed unexplained. The assessee argued that these deposits were from previously explained loan withdrawals intended for a property investment that did not materialize. The Tribunal found that the CIT(A) had not issued a proper notice of enhancement before making this new addition, rendering the action procedurally unsustainable. On merits, the Tribunal accepted the assessee's explanation that the re-deposited cash originated from earlier withdrawals of an explained loan amount.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 847203 (ITAT-BANGALORE)
• Duration Of Justice: 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2026
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Bangalore
• Assessment Year: 2017-2018
• Appeal Filed On: 14-08-2025
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBRAMANIAN
• Assessee Lawyers: SIDDESH N GADDI
• Keywords: Set aside; Tax effect; Principle of natural justice
• Section: 143(3); 142(1)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH, BANGALORE BEFORE SHRI PRASHANT MAHARISHI, VICE PRESIDENT SHRI SOUNDARARAJAN K, JUDICIAL MEMBER ITA No.1802/Bang/2025 Assessment Year: 2017-18 Mr. Sathya Reddy, No.412 Lakshmi, 4th B Main, OMBR Layout Bhuvanagiri, Bangalore – 560 043. PAN – ABEPR 3871 K Vs. The Income Tax Officer, Ward – 1(2)(2), Bangalore. APPELLANT RESPONDENT Assessee by : Shri Siddesh N Gaddi, CA Revenue by : Shri Subramanian, JCIT (DR) Date of hearing : 08.01.2026 Date of Pronouncement : 26.03.2026 O R D E R PER SHRI SOUNDARARAJAN K, JUDICIAL MEMBER : This appeal is filed by the assessee challenging the order of the National Faceless Appeal Centre (NFAC), Delhi, dated 15/07/2025, in respect of the Assessment Year 2018-19. The assessee has raised the following ground of appeal:- “On the facts and in the circumstances of the case, the impugned addition by applying the provisions of sec.69A of the Act as made by the assessing authority, as upheld by the CIT(A), is opposed to law and to the principles of natural justice in that no adequate opportunity had been given to the appellant to explain the cash deposit in the bank account. Printed from counselvise.com ITA No.1802/Bang/2025 Page 2 of 7 2. The learned CIT(A) and AO having failed to peruse the documents furnished by the appellant, the impugned addition as made was totally uncalled for and liable to be deleted. 3. The CIT(A) has erred in law and on facts in upholding the erroneous order of the Learned AO. 4. The Ld.CIT(A) has erred in law and on facts in not issuing mandatory notice under section 251 of the Act before undertaking enhancement or changing the basis of addition; 5. The Learned AO/CIT(A) have erred in law and on facts in making an addition of Rs.. 75,16,000/- under section 69A of the Act as unexplained money; 6. The Learned AO/CIT(A) have erred in law and on facts in not appreciating the source of cash as was duly evident considering the documents available on record during the course of proceedings. 7. The Learned AO/CIT(A) have erred in law in questioning the veracity of the entries in the cash book when the same was evident from the bank statements as already furnished before him; 8. Without prejudice to the fact that the Appellant is not required to explain the reason for withdrawals, the learned AO/CIT(A) has erred in law and on facts in not appreciating the Appellant' submission in this regard; 9. The Learned CIT(A) has erred in law and on facts in questioning the explanation of the Appellant with respect to the cash found, merely on the basis of the period of holding and without appreciating the reasons for such holding. 10. The Learned CIT(A) has erred in law in not appreciating that unless the Learned AO proves that the cash withdrawn is used for other purposes, the same is presumed to be available for redeposits(as found and seized). 11. The Learned AO/CIT(A) have failed to appreciate that the provisions of section 69A/68 are inapplicable on the facts and circumstances of the case; Printed from counselvise.com ITA No.1802/Bang/2025 Page 3 of 7 12. The addition under section 69A/68 is liable to be deleted as the Appellant has discharged the initial burden cast upon him under the said provisions of the Act; 13. The impugned adjustments being merely based on presumption and surmises, are to be deleted; 14. The actions of the Learned AO are contrary to the provisions of the Act, facts of the case, arbitrary and without any application of mind; 15. The Learned AO has erred in raising demand vide issue of notice under section 156 of the Act; 16. The learned CIT(A) and AO erred in levying the Tax and Additional Tax under sec 115 BBE of the Act. 17. The learned CIT(A) and AO erred in levying the interest under sec 234A, of the Act. 18. For these and other grounds that may be urged at the time of hearing of the appeal the appellant prays that the appeal may be allowed. (Tax effect Rs. 58,62,480/-) On the basis of the above grounds and other grounds which may be urged at the time of hearing with the consent of the Honourable Tribunal, it is prayed that the order passed under section 143(3) of the Act as upheld by the Commissioner of Income Tax (Appeals), be quashed and relief sought be granted.” 2. The brief facts of the case are that the assessee is an individual who earned agricultural income, income from house property, and income from other sources. The assessee filed his return of income on 22/02/2018. Subsequently, the case was selected for scrutiny to examine cash deposits and withdrawals made during the year. Notices under Section 143(2) and Section 142(1) were issued and in response to which the assessee furnished the required details. Printed from counselvise.com ITA No.1802/Bang/2025 Page 4 of 7 3. The Assessing Officer (AO), after considering the submissions, observed that the assessee had deposited cash into her Syndicate Bank and Canara Bank accounts and had withdrawn a total of Rs. 1,38,74,500/- from the said accounts. The AO stated that the assessee failed to explain the source of the money used for such substantial cash withdrawals. Consequently, the AO treated the said withdrawals as unexplained money under Section 69A of the Act. 4. Aggrieved by the order, the assessee filed an appeal before the CIT(A). The assessee contended that details for both cash deposits and withdrawals were furnished before the AO, but the AO mechanically made an addition under Section 69A without considering the documents. The assessee further submitted that since the cash deposits were already explained, the withdrawals out of those deposits could not be treated as unexplained money. 5. During the appellate proceedings, the assessee filed written submissions along with bank statements and loan sanction documents. These documents showed that the cash originated from a loan credited to her account by M/s Dewan Housing Finance Corporation Limited. The assessee argued that since the loan amount was the source of the withdrawals, the addition under Section 69A was incorrect. 6. The Ld. CIT(A) perused these documents and, in paragraph 5.4.1, set aside the addition of Rs. 1,38,76,500/- as unexplained money. However, the Ld. CIT(A) then treated the cash re-deposits of Rs. Printed from counselvise.com ITA No.1802/Bang/2025 Page 5 of 7 75,16,000/- as unexplained money/credit, on the ground that the assessee failed to provide a satisfactory explanation for the necessity of re-depositing that specific amount. Against this fresh addition, the assessee is now in appeal before this Tribunal. 7. At the time of the hearing, the Ld. AR submitted that the AO’s original addition was based on withdrawals, whereas the Ld. CIT(A) made a new addition based on deposits—an issue not raised by the AO. The Ld. AR further argued that the Ld. CIT(A) made this addition without issuing any enhancement notice, which is against the principles of natural justice. On merits, the Ld. AR explained that the cash deposits were simply from the remaining balance of the previously withdrawn loan funds, which were re-deposited after a proposed property investment failed to materialize. 8. The Ld. DR, on the other hand, supported the orders of the lower authorities and prayed for the dismissal of the appeal. 9. We have heard the rival submissions and perused the material on record. It is observed that the AO originally added Rs. 1,38,76,500/- representing withdrawals. The Ld. CIT(A) correctly deleted this addition after being satisfied with the source (the DHFL loan). However, the Ld. CIT(A) then suo motu added Rs. 75,16,000/- regarding re-deposits. We find merit in the assessee's argument that the Ld. CIT(A) failed to issue a proper notice of enhancement before making this new addition, rendering the action procedurally unsustainable. Printed from counselvise.com ITA No.1802/Bang/2025 Page 6 of 7 10. Even on merits, the bank statements from Canara Bank shows that a loan of Rs. 1,48,33,975/- was credited to the assessee's account on 03/06/2016. Out of the withdrawals made from this loan, the assessee spent Rs. 58,50,000/- on agricultural land development (excavation, leveling, etc.). The balance of Rs. 75,16,000/- was re- deposited when a planned property investment did not materialize. These transactions are routed via bank challans. In the absence of any evidence suggesting an alternative source of income, it must be accepted that the re-deposited cash originated from the earlier withdrawals of the explained loan amount. 11. Consequently, we are satisfied with the explanation provided by the assessee. While we uphold the Ld. CIT(A)’s decision to delete the original addition of Rs. 1,38,76,500/-, we set aside the fresh addition of Rs. 75,16,000/- made by the Ld. CIT(A). 12. In the result, the appeal of the assessee is hereby allowed. Order pronounced in court on 26th day of March, 2026 Sd/- Sd/- (PRASHANT MAHARISHI, (SOUNDARARAJAN K) Vice President Judicial Member Bangalore Dated, 26th March, 2026 / vms / Printed from counselvise.com ITA No.1802/Bang/2025 Page 7 of 7 Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore Printed from counselvise.com "